Finding Balance in an Entrepreneurial Life

My column from the Tennessean this week:

So why do entrepreneurs start businesses, anyway? Certainly, a fundamental reason is to make a living and build a nest egg.

But entrepreneurs can be driven by something much more than that. They can become obsessed by the challenge and thrill of “the deal.” Once they make it past the start-up period, some will try to take their businesses as far as the market will let them. To them, success is measured not by their ability to provide for their family, but by how large they can build their business.

Still others become serial entrepreneurs — starting business after business over the course of their careers. But there is a risk for entrepreneurs who are driven to build their businesses even larger, or who can’t wait to start that next deal. They can become almost addicted to the deal-making process; they can become what I call an “entre-holic.”

While building businesses that provide for our families and that create good jobs for others is a noble act, some entrepreneurs can easily lose balance in their lives.

The pursuit of the deal can begin to crowd out the other things in life. Entrepreneurs need to keep in mind that we all are more than what we do in our work, more than just business owners. We are spouses, parents, friends and citizens.

Life requires balance

Entrepreneurs need to take actions that lead them to be good at all that they are called to do in their lives. That may mean that they temper their ambitions to make sure they have time for all the other things that are important.

Finding balance can be quite elusive for those of us who love to pursue opportunity. I have wrestled with “entre-holism” for much of my working life. Like many entrepreneurs, I am addicted to opportunity-seeking.

This never was clearer to me than when we sold our health-care company. After the sale, I was immediately ready to seize that next opportunity. I had the plan. I had the funding.

Luckily, I also have a very wise wife. She said to me: “You are in time out. No deals for six months.” She recognized what I did not — that I had let the pursuit of the deal consume me. It defined who I was and left no room for all of those other things that we are called to be in our lives — a parent, a spouse, a friend.

My “time out” forced me to really spend time discerning what I should do next. And eventually I realized it was not that next deal.

Now, I need to be clear that entre-holism is a disease of relapse. Even as an academic, a professor at a university, I find myself slipping and thinking of pursuing too many opportunities rather than leading a life of moderation. Just this past year I had three book projects going all at once.

Why? Because each project seemed too good to pass up.

But once again my wife was there to rescue me. When New Year’s rolled around, she gave me my resolution for 2009. “You will only read books in 2009.”

Financial Tool Being Tested

Financial literacy is a real challenge for many entrepreneurs.

The folks working with Investopedia.com (part of Forbes) are asking for our opinions. They are developing videos to assist people with their understanding of basic financial terms.

They have asked us to take a look at a sample video they have produced and give our feedback.
Would videos like this be helpful? Is the material clear?

Any suggestions and opinions will be welcomed.
Please take a look at the video below and pass along your thoughts — positive or negative — through the comment feature of this blog post.

Thanks!

 

The Face of Entrepreneurship in the US

A couple of interesting studies came out this week that help us better understand the direction of entrepreneurship in our economy.

A study by Microsoft suggests the most of the new entrepreneurs today are either accidental entrepreneurs or at least not folks who had aspired to become an entrepreneur before the recession.  The study found that about 70 percent of the respondents left their jobs to start their own businesses in the midst of the current recession.

The latest Global Entrepreneurship Monitor (GEM) report that looks specifically at the U.S. was just released by Babson College.  It gives a very interesting snapshot of the real face of today’s American entrepreneurs.

The GEM study found that the total entrepreneurial activity actually increased in the US to 10.8% in 2008 from 9.6% in 2007.

Even though we know many of today’s entrepreneurs came to starting their ventures due to the economy, they are still seeking ventures out of opportunities they have observed rather than just starting something to make ends meet.  The study found that 87% of US entrepreneurs started their businesses because of a business opportunity while only 13% started their businesses simply out of necessity.

However, even though these entrepreneurs see opportunity, they also see an increased risk of failure, which increased in 2008. 

A finding that caught me somewhat by surprise was that the typical entrepreneur is getting older.  The GEM study found that boomers are become more entrepreneurial, while the Millennials and the Gen X-ers are becoming less likely to start a venture. The results indicate a marked reduction (around 8% to 9%) in entrepreneurial activity for individuals in the 18-44 age group and an increase of a similar amount in the 45-98 age group.

The study did not differentiate the Millennials from the Gen X-ers.  My anecdotal observations from our program and others is that the Millennials seem to be holding their own, and show signs of increasing their entrepreneurial activities over the coming years, while the Gen X-ers seem to be hunkering down trying to make ends meet through employment.

In a finding that sent chills down my spine, the study found that the size of the ventures entrepreneurs are thinking about is changing.  From 2007 to 2008, the number of jobs entrepreneurs expected to create from their start-ups decreased among the smaller firms.  Not a good sign of long term employment growth.

The GEM results indicate a continuation of the trend toward a business service- and away from a manufacturing-economy. Looking at particular sectors of entrepreneurial activity, U.S. activity is more concentrated in the business services sector and less concentrated in the transforming sector than the activities of other countries in the innovation-economy group, for both early-stage and established firms.  Another bad sign for the long-term economic outlook in the US.

Finally, in terms of financing, the number of adults reporting that they had invested in someone else’s business increased (to 5%), as did the amount they financed ($17,500); yet those numbers are countered by the precipitous decline in SBA lending.  It is the private sector, not the government, that is keeping the entrepreneurial engine running in our economy.

Entrepreneurship is Anemic Around the Globe

The driver of the old economy from the twentieth century was the auto industry.  The old saying was that if General Motors sneezes, the rest of the economy caught a cold.

The driver of the economy in this century has been entrepreneurs.  From the sounds of the latest survey from the Kauffman Foundation and the OECD, entrepreneurs seem to have caught swine flu, so the rest of the economy is probably about to go on life support.

In all 23 countries and regions surveyed, firm formation declined and exits increased.  This should be viewed as a leading indicator of job creation — or should I say the lack of it — as 75-80% of all new jobs came from small business over the past twenty years.  The only parts of the world that show even a glimmer of hope are Eastern European countries and Brazil, where they have seen higher rates of firm births and growth.  These are parts of the world that began to restructure to foster entrepreneurial activity even before the downturn.  However, these regions have also seen an increase in firm closures.

The U.S. (also the U.K. and to a lesser extent Spain) observed a decrease in firm entries already in 2007, when most other countries were still reporting a steady rise.

Preparing for Inflation

I continue to be in the camp that is worried about inflation — even possibly hyper-inflation — in the not too distant future.  Our ballooning debt along with the many latent inflationary pressures could soon create the spark that ignites a fire storm of runaway prices.  If we see a currency crash, or many are now saying when we see one, we could likely see double or even triple digit inflation.

The problem for small business during inflationary times is that they are less able to adjust prices as quickly to
adjust to inflationary pressures.  There is never a smooth and orderly increase in
prices for every business in the economy and small businesses often suffer the most.

If you have big suppliers and/or customers they can tie your hands. 
Your costs go up, but you are unable to pass along these costs with
higher prices.  One of the added costs we now have to worry about is increased taxes.  This is a real cost to entrepreneurs and cannot be ignored as a part of inflationary costs.

What
I worry about even more is that we may see inflation take hold long
before the recession is over.  This makes keeping prices up to stay
ahead of increasing costs even more difficult as demand will still be
fairly weak for some time.  Given the growing evidence that this may become a long, very long, recession this is a real threat. 

So
what can a small business do in terms of pricing strategies to try and weather this
impending inflationary storm? 

The
recession has made entrepreneurs leery of doing anything but cut prices
to keep their businesses afloat during the recession.  While that may
still be the best course over the short-run, pay very close attention
to pricing from your suppliers, decreases in unemployment, increasing
interest rates, and pricing moves from the big boys in your industry. 
These are the elements of your inflationary dashboard.

When inflation heats up even a little, be aggressive with frequent
small price increases rather than waiting and trying to catch up at
some point with one big jump. Don’t let yourself get behind, as small businesses can almost never play catch-up with their prices.

This
can be tough to implement for some businesses, particularly if you publicly list your prices.  For example, it can get very costly to
print up new menus each month for a restaurant owner who wants to
follow this strategy.

But customers are less likely to pay
attention to price increases if they are small, so it is essential to
find creative ways to communicate your pricing to allow for you to
implement this strategy during inflationary times.  For a restaurant it
may require using menu inserts that can inexpensively be replaced. 
This was actually very commonly used in restaurants during the 1970s
and 1980s when we had high inflation.

I know the question of the
week is pricing, but I can’t let this discussion go without a brief
reminder that the income statement is also made up of costs.  Adjusting
to inflation also requires careful attention to expenses, as cutting
costs can at least somewhat help ease the pressure to increase prices. 

Continue the prudent management of expenses that helped you survive the recession:

– Keep overhead low.

– Build cash reserves to buffer short term price increases that precede your ability to get higher prices from your customers.  I know this sounds contrary to the investment advice we are now hearing about holding cash during inflation.  Don’t think of this cash as investment — it is your levy to hold back the rising tide of inflation. 

– Watch your margins carefully. Worry about growing profits, not sales.

– Don’t lock into long-term contracts that have narrow margins with large customers.

– Pay down variable interest loans ASAP, especially now that
interest rates are temporarily relatively low. As soon as inflation heats up, interest rates will continue to rise.  And given the stubbornness that the Fed is now showing with interest rates, we may soon see huge spikes in rates over just a few quarters as inflation takes hold.

Dorm Room Entrepreneurs

One of my former dorm room entrepreneurs, Andy Tabar, sent me a story from CNN.com about the growing trend of students starting businesses on campus:

While the founders of Google built success in their garages,
these college students found it in their dorms. In addition to their course
work, studying for midterms and balancing extracurricular activities, they wrote
business proposals and figured out financing.

We are working with dozens of student entrepreneurs, operating out of their dorms and apartments.  We also give them some resources on campus to help create a runway for their ventures.  Below is a picture one of two hatcheries where our student entrepreneurs work on launching their businesses and forging a path into their post-college careers that is part of a system of co-curricular programs we have created to support our student entrepreneurs (click here for more detail).

HatcheryBSLC.jpg

Culture and Labs

jazzmyn.jpg

This past Friday I led a seminar for our local chapter of EO called “An Intentional Culture.”

Whenever I talk about culture I always am reminded of a chocolate Labrador retriever we used to have named Jazzmyn.  While she was one of the sweetest dogs we have ever owned, anyone who has had a lab will tell you that they are a very high maintenance dog. 

Training is a life-long process with many labs.  If you ever let up, they will begin to go their own way — labs have a strong will and a mind of their own!

That is why Labrador retrievers are the best metaphor I can think of for the culture within a business.  Culture also can seem like it has a mind of its own.  Your culture will be shaped by everyone you hire, your market, your customers, and even investors. 

If you don’t continue to pay very close attention to your culture, it will begin to drift away from what you had intended.  Just like our old lab Jazzmyn, you can never take your eye off your culture.

Some entrepreneurs are driven by the desire to create a certain type of culture in the business.  For example, Nashville businesses like Emma (e-mail marketing) and redpepper (advertising and strategic marketing agency) consider building and sustaining their cultures to be one of their top priorities.  To make that happen, the founders and their team relentlessly work to build and sustain their cultures.

What is Keeping Entrepreneurs Awake at Night?

SmartBrief conducted a survey to find out what stresses entrepreneurs most these days.  Here is what entrepreneurs told SmartBrief causes them the most stress:

Complying with government regulations   28.76% 
Staying ahead of the competition   20.80% 
Managing employees/contractors   19.47% 
Making payroll   15.49% 
Dealing with customer issues   15.49%

Here is their take on these findings:

Employees, customers and payroll worries may keep you up at night, but they
lagged far behind the biggest stress factor of all: government regulations. Even
the competition (which, theoretically, is trying to put you out of business),
causes less stress than the government (which, theoretically, is trying to help
your business). In other words, government loans and educational programs may be
nice, but if Washington really wants to encourage entrepreneurial risk-taking,
it needs to get out of the way so you can get a decent night’s sleep.

The results are quite revealing, especially given the study I cited
earlier this week that shows the real state of regulation in the U.S.

I wish we’d follow Europe’s lead when it comes to business regulation (rather than socialized healthcare) — they are slashing small business regulations to help spur new business formation all over the continent.

Bootstrapping Lessons for College Graduates

Carl Lavin, managing editor at Forbes.com, has posed a question to those of us in the blog network:

Recently, the U.S. Bureau of Labor Statistics reported a jump in the unemployment rate to 10.2%.Some economists think we could be looking at 10.5% by early next year.  

Given these grim forecasts, how do you counsel recent college graduates and others entering the job market for the first time in this employment climate? Is there any advice or strategies you find particularly useful?

I tell my students and recent alumni that the age of entitlement is over. 

For my students — those who study entrepreneurship — this is not necessarily a bad thing.  The best chance they have to forge their way in this long a deep recession is to find their own path.  For many it is starting their own business.  While this is a tough time to start a business, it is a time that will highly favor those who know their way around the entrepreneurial block.  Entrepreneurs can no longer rely on the wave of high economic growth to carry them.  But if they have studied what we offer them in our classes, and applied it properly, they have a much better chance than the average entrepreneur of making it in what has become a cold and difficult world.

Even if a young person entering the workplace is not going to start a business, they need to look at themselves as a product that they are introducing to the market.  What are the needs in the market? Which of those needs do they have the ability to address?  How can they position themselves to take advantage of the opportunities that are out there?   

And rather than assume that the ideal job that will offer them instant fulfillment and gratification is just around the corner — because it is not — they need to view their career just like a scrappy, bootstrapping entrepreneur approaches them market.

Here are some tips:

  1. Take what the market gives you.  A bootstrapping entrepreneur may have lofty dreams, but recognizes that you have to start somewhere.  The first job, like most first ventures, is just the first step of a long journey.  But, you have to be willing to take that first step if you even hope to move ahead and have a chance to reach that ultimate destination. 
  2. Start with what you know and who you know.  The best strategy for launching a first business is to start with something that builds on your experiences and your knowledge.  The same is true about a career these days.  You best next job, or first full-time job coming out of school, is most likely going to build from experiences you already have had and people you already know.  It may not be glamorous, but its a job.
  3. Work with the resources you have.  The millennial generation seems to want to have what their baby boomer parents have spent a career accumulating, and they want it now!  Follow the path that my young bootstrapping entrepreneurs follow.  They are used to being poor college students, so they keep that lifestyle to help bootstrap their first venture.  Their recognize that their personal overhead is really part of the business overhead.  The lower their overhead is, the quicker they can reach break-even.  The same is true with a job.  Keep your lifestyle in poor college student mode — it will open up a world of jobs you might not otherwise consider.  Those jobs will eventually open the door to better ones.  Sure the pay is not what you had hoped you might see, but your goal is to get a track record and become economically independent — period.
  4. Keep on bootstrapping for years to come.  Experienced entrepreneurs learn that bootstrapping can come in handy even as a business grows.  Good times are eventually followed by bad ones — crises can, and will, happen.  Bootstrappers have a good record of weathering the tough times.  So young people entering the workplace should keep that same attitude.  Don’t assume that all the times ahead will be rosy.  Prepare yourself for future tough times.  Over a long career, more than one tough time will happen.
  5. Cash is King!  Save, save, and save some more.  A healthy bank account is a wonderful buffer from life’s slings and arrows.